Banks ease credit standards in Q4

MANILA, Philippines — Local banks slightly eased their credit standards for loans to both households and businesses in the last quarter of 2017 , the Bangko Sentral ng Pilipinas (BSP) said.

Based on the central bank’s Senior Bank Loan Officers’ Survey, credit standards for loans to both enterprises and households recorded a net easing in the last three months 2017 using the diffusion index approach.

This was a reversal from the three consecutive quarters of net tightening implemented by banks in 2017.

According to the BSP survey, the diffusion index for lending requirements to enterprises stood at negative three percent in the fourth quarter of 2017.

In the diffusion index approach, a positive index indicates the proportion of banks that have tightened their credit standards exceeds those that eased (net tightening), whereas a negative index indicates that more banks have eased their credit standards compared to those that tightened (net easing).

Results of the survey showed the slight net easing was attributed to the improved profitability and liquidity of respondent banks’ portfolios, a more favorable outlook on the economy, and banks’ increased tolerance for risk, among others.

Specifically, the BSP said the net easing was reflected in the banks’ increase credit line sizes, less strict collateral requirements, and longer loan maturities. Banks also eased their credit standards for loans to micro-enterprises.

However, the survey found that more banks anticipate tightening in their credit standards in the following quarter, due to their perception of stricter financial system regulations.

Meanwhile, the diffusion index for credit requirements to household settled at negative 10 percent during the period.

“In particular, credit standards for credit card loans and auto loans were eased, which was attributed by respondent banks to the improvement in the profitability of their portfolio, their increased tolerance for risk, and improvement in the profile of their household borrowers, among others,” the BSP said.

Like credit standards for enterprises, banks said they also expect overall net tightening of credit standards in the next quarter, particularly for credit card and personal or salary loans, due to stricter regulations and reduced tolerance for risk.

In terms of demand, the diffusion index approach of the survey showed there was a net increase in loan demand across all firm sizes and all types of household loans. This was due to companies’ improved economic outlook, and higher household consumption.

More banks said they expect loan demand to sustain its growth, compared to those which did not.

On the other hand, based on the modal approach of the survey, local banks continued to maintain their credit standards for loans to both enterprises and households.

This was the 35th consecutive quarter since the second quarter of 2009 that majority of respondent banks reported broadly unchanged credit standards.